LexTATA IRON & STEEL CO. LTD. versus UNION OF INDIA & ORS.
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T,~TA IRON & STEEL CO. LTD. . v. UNION OF INDIA & ORS. MAY 6, 1988 [R.S. PATHAK, CJ, AND M.H. KANIA, J.] B Central Excises & Salt Act, 1944/Centra/'Excise Rules, 1944: Sec- tion 2(f), 1ZA & First Schedule Item Nos. 26AA, 26AA(ia) and 68 Rules 173-B, 173(G)(i) and 173(i)(a)-Assessee-manufacturer supplies wheels, ty;es and axles as also wheels and axles as composite units to the Railways-goods after being forged machined and polished to remove C excess layer of steel-goods whether dutiable at or« .?fo~e or two stages- Demand for excess duty period of limitation. The appellant-assessee manufactures and supplies to the Indian Railway wheels, tyres and axles as separate items. The goods are forged products. After being forged, the goods are rough machined and D polished before supplying, thus removing the excess layer of steel, com- monly referred to as 'excess skin'. The appellant also makes and sup- plies to the Railways wheels and axles as composite units. Right from 1962 the appellant/assessee was filing classification lists showing the forged goods as liable to excise duty only under Tariff E Item No. 26AA(ia) of the Central Excise Tariff set ·out iu the First Schedule to the Central Excises and Salt Act, 1944, and this classifica- tion was being accepted and approved by the Excise Authorities. It -is common ground that duty under Tariff Item No. 26AA was payable ou .:._.. the forged product and duty nuder Tariff Item No. 68 was payable only \ at the stage of the completion of the manufacture of the finished goods. F In 1981, the Assistant Collector, Central Exicse, called upon the appellant to show cause why it should not be proceeded against for contravention of Rule 173-B, 9(i) read with Rule 173(G)(i) and Rule l 73(i)(a) on the ground that the goods supplied to the railways were not forged items as such, but the said goods after they had undergone G >-- machining and polishing after having been forged had been turned into a distinct commercial commodity which process amounted to manu- facture and hence the goods were liable to excise duty as set out in Item 68. The notice also called upon the appellant to show cause as to why duty on the forged goods under Tariff Item No. 26AA(ia) should not be payable on the footing of the weight of the goods as forged and before H 1023 1024 SUPREME COURT REPORTS [1988] 3 S.C.R. A the removal of the excess skin. The basic contention of the revenue was that the goods were liable to duties at two stages, namely, under Tariff Item No. 26AA(ia) when they were forged and under Triff Item No. 68 after they were machined and polished. B c The stand of the appellant was that the process of forging of the goods could be paid to be completed only after machining and polish- ing, that machining and polishing was required to be done in order to bring the goods in line with the specification of the Indian Railways, that the goods supplied have to be further precision machined and rme polished at the railway workshop before these could be put to use by the railways, and hence the machining by the appellant did not amonnt to manufacture. A Certificate issued by the Railways states that axles are supplied to the railways in rongh machined condition and wheels, tyres and blanks are supplied in "as rolled/as forged" condition. It further states that these wheels, tyres, exles and blanks have to be sometimes rough D machined partially to remove excess steel or manufacturing defects, and these products are snbsequently precision machined by the Rail- ways at their workshops before being put to use. E The Collector rejected the stand of the appellant and held that the 1 appellant was liable to pay differential duty under Item 26 AA (ia) on the difference between weight of the said goods when forged and the weight after machining to remove the excess skin as well as the duty under ' - Tariff Item No. 68. The Collector also held that the appellant was liable - F to penalty of Rs. I lac under Rule 173 Q for suppression of facts or giving misleading particulars. On that basis the Collector took the view that the period of limitation for making the demand was 5 years prior to y the service of the show cause notice. The appellant filed writ petition in the Patna High Court for quashing the order passed by the Collector. The ijigh Court accepted the conclusions of the Collector save and except that they took the view that there was no
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